Purpose
of Form
Form
1065 is an information return used to report the income, gains, losses,
deductions, credits, etc., from the operation of a partnership. A partnership
does not pay tax on its income but “passes through”
any profits or losses to its partners. Partners must include partnership items
on their tax returns.
Definitions
Partnership
A
partnership is the relationship between two or more persons who join to carry
on a trade or business, with each person contributing money, property, labor,
or skill and each expecting to share in the profits and losses of the business
whether or not a formal partnership agreement is made.
The term
“partnership” includes a limited partnership,
syndicate, group, pool, joint venture, or other unincorporated organization,
through or by which any business, financial operation, or venture is carried
on, that is not, within the meaning of the regulations under section 7701, a
corporation, trust, estate, or sole proprietorship.
A joint
undertaking merely to share expenses is not a partnership. Mere co-ownership of
property that is maintained and leased or rented is not a partnership. However,
if the co-owners provide services to the tenants, a partnership exists.
Husband-wife
business.
Generally, if you and your spouse jointly own and operate
an unincorporated business and share in the profits and losses, you are
partners in a partnership and you must file Form 1065.
Exception—Qualified
joint venture.
Beginning in 2007, if you and your spouse materially
participate as the only members of a jointly owned and operated business, and
you file a joint return for the tax year, you can make an election to be
treated as a qualified joint venture instead of a partnership. By making the
election, you will not be required to file Form 1065 for any year the election
is in effect and will instead report the income and deductions directly on your
joint return.
To make this election, you must divide all items of
income, gain, loss, deduction, and credit between you and your spouse in
accordance with your respective interests in the venture. Each of you must file
a separate Schedule C, C-EZ, or F. On each line of your separate Schedule C,
C-EZ, or F, you must enter your share of the applicable income, deduction, or
loss. Each of you also must file a separate Schedule SE to pay self-employment
tax.
If you and your spouse make the election for your
rental real estate business, you each must report your share of income and
deductions on Schedule C or C-EZ instead of Schedule E. Although rental real
estate income generally is not included in net earnings from self-employment,
you and your spouse each must take into account your share of the income and
deductions from the rental real estate business in figuring your net earnings
from self-employment on Schedule SE.
Once made, the election cannot be revoked without
IRS consent. If you and your spouse filed a Form 1065 for the year prior to the
election, you do not need to amend that return or file a final Form 1065 for
the year the election takes effect. However, the partnership terminates at the
end of the tax year immediately preceding the year the election takes effect.
Foreign
Partnership
A foreign partnership is a partnership that is not created or organized in
the United States or under the law of the United States or of any state.
General Partner
A general partner is a partner who is personally liable for partnership
debts.
General
Partnership
A general partnership is composed only of general partners.
Limited Partner
A limited partner is a partner in a partnership formed under a state
limited partnership law, whose personal liability for partnership debts is
limited to the amount of money or other property that the partner contributed
or is required to contribute to the partnership. Some members of other
entities, such as domestic or foreign business trusts or limited liability
companies that are classified as partnerships, may be treated as limited
partners for certain purposes. See, for example, Temporary Regulations section
1.469-5T(e)(3), which treats all members with limited liability as limited
partners for purposes of section 469(h)(2).
Limited
Partnership
A limited partnership is formed under a state limited partnership law and
composed of at least one general partner and one or more limited partners.
Limited Liability
Partnership
A limited liability partnership (LLP) is formed under a state limited
liability partnership law. Generally, a partner in an LLP is not personally liable
for the debts of the LLP or any other partner, nor is a partner liable for the
acts or omissions of any other partner, solely by reason of being a partner.
Limited Liability
Company
A limited liability company (LLC) is an entity formed under state law by
filing articles of organization as an LLC. Unlike a partnership, none of the
members of an LLC are personally liable for its debts. An LLC may be classified
for federal income tax purposes as a partnership, a corporation, or an entity
disregarded as an entity separate from its owner by applying the rules in
Regulations section 301.7701-3. See Form 8832, Entity Classification Election,
for more details.
Note.
A
domestic LLC with at least two members that does not file Form 8832 is
classified as a partnership for federal income tax purposes.
Nonrecourse Loans
Nonrecourse loans are those liabilities of the partnership for which no
partner bears the economic risk of loss.
